Does Smart Routing Matter?

9 Pages Posted: 21 May 2019

See all articles by Jeffrey Michael Bacidore

Jeffrey Michael Bacidore

The Bacidore Group, LLC

Hernan Otero

Goldman Sachs Asset Management

Alak Vasa

Vice President

Date Written: August 18, 2010

Abstract

We compare the performance of broker smart routers separately for non-marketable and marketable orders. For non-marketable orders, smart routers that “naively” route to maximize liquidity rebates perform significantly worse than those routing to maximize fill rates. The difference between the best and worst broker smart router is about 10% of the bid-ask spread (0.4 basis points) on average for large cap stocks and 6% of the spread (0.9 basis points) on average for small cap stocks, a significant difference for cost-sensitive traders. We also find that the best brokers perform well across all liquidity groups. For marketable orders, however, smart router performance generally does not vary significantly across brokers.

Keywords: Algorithmic Trading, Smart Routing, Reg NMS, Limit Orders

Suggested Citation

Bacidore, Jeffrey Michael and Otero, Hernan and Vasa, Alak, Does Smart Routing Matter? (August 18, 2010). https://doi.org/10.3905/jot.2011.6.1.032. Available at SSRN: https://ssrn.com/abstract=1681449 or http://dx.doi.org/10.2139/ssrn.1681449

Jeffrey Michael Bacidore (Contact Author)

The Bacidore Group, LLC ( email )

New York, NY 10128
United States
914-296-4311 (Phone)

HOME PAGE: http://bacidore.com

Hernan Otero

Goldman Sachs Asset Management ( email )

200 West Street
New York, NY 10004
United States

Alak Vasa

Vice President ( email )

200 West Street
New York, NY 10004
United States

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